TORONTO - For the first time in a decade, neither of Canada's two largest stock markets had a mining IPO in the first quarter of 2013 — a sign of deep investor impatience with a sector that performed badly for them last year.
A report released Monday by PwC says the mining sector — a mainstay of the Canadian stock markets — raised only a tiny amount of money in the first three months of 2013 by initial public offering.
Of the $422 million total in IPO activity counted by PwC, only $250,000 was in the mining sector and it was placed on the Canadian National Stock Exchange — not the bigger Toronto Stock Exchange or TSX Venture Exchange.
"The complete lack of activity in mining, a sector that has been a pillar of Canada's equity market, is unprecedented," Dean Braunsteiner, PwC's national IPO services leader, said in a statement.
The PwC study excluded certain types of new issues, including IPOs for exchange-traded funds and investment vehicles known as structured products.
According to PwC's comparison, there were 13 new IPOs on all Canadian exchanges — all but one in mining — in the first quarter of 2012, for a total value of $20 million of stock issued.
John Gravelle, PwC's mining leader for the Americas, said it has become increasing difficult to do equity financings in the mining sector over the past 18 to 24 months because investors aren't willing to accept the risk involved.
An earlier PwC annual study of top 100 companies on the TSX Venture junior market, found that their market capitalization in the first half of 2012 was down about 40 per cent from the 2011 study, and so was the level of equity financing.
"So that showed that it was very difficult for them to raise equity," Gravelle said Monday in an interview.
Gravelle said there were a few signs of life in the last part of 2012, with some takeover and merger activity and some companies able to raise significant capital prior to entering the production phase.
Then a number of companies announced more writedowns of their assets.
"A lot of them had writedowns in 2012 already and now they were announcing more writedowns. I think that factor had a number of investors just saying 'I've had enough and I'm not going to invest in mining companies any more. I'm going to invest in something else. And they just left the mining industry."
During the first quarter, Milestone Apartments, a real-estate investment trust, announced a $200-million IPO in January and American Hotel Income Properties announced an $87-million IPO, also in January.
Milestone units (TSX:MST) began trading on March 6 at $10.05 and American Hotel (TSX:HOT) began trading Feb. 20 at $10.10.
Two other IPOs announced in late 2012 also began trading in the first quarter: Agellan Commercial Real Estate (TSX:ACR.UN) opened trade on Jan 25 at $9.92 on the Toronto Stock Exchange and Loma Vista Capital (CNSX:LOV) and metals and minerals company listed on the small Canadian National Stock Exchange.
The TMX Group (TSX:X) noted there were IPOs for three ETFs and NexC Partners Corp. (TSX:NXC), a structured products company, in the first two months of 2013 on the Toronto Stock Exchange that weren't counted by the PwC study. They had a total market value of $41.4 million at the end of February.
There were also five capital pool companies that had initial public offerings on the TSX Venture Exchange.
Gravelle said junior mining companies play an important role in the industry — finding the new discoveries that are later acquired and mined by bigger companies — but with the equity market closed to them they've had to look for other ways to raise money.
Braunsteiner noted that some mining companies have recently sought debt financing and there has been anecdotal evidence that private equity firms look to be moving into the sector.
"However, the availability of money for the costly construction phase of new mines still remains a question mark. Given the importance of the mining industry to our equity markets, this is a trend that bears watching," he said.
Gravelle said the debt financing comes with high interest rates while another source of capital — agreeing to hand over a share of the future production, through a mechanism called royalty streams — gives the mine operators less opportunity to benefit from a rebound in commodity prices.
"So they can be expensive sources of financing but in this market, if they want to continue to build their projects, they need the money and these are the types of things they're looking at."
He said the junior companies that typically do IPOs play an important role in the mining industries, since the major and intermediate players rely on them to do much of the exploration work required to replenish reserves.
"The big companies still do a lot of exploration around existing mines, so they can extend mine life. But as far as going all over the world, looking for new resources, they've left that to the juniors," Gravelle said.
"So the intermediates and majors need that junior sector to be able to raise financing so they can continue to do what they do best."